Which of the Following Statements Best Explains How Financial Institutions

question 49

Multiple Choice

Which of the following statements best explains how financial institutions create money?

• A) By opening new checking accounts and giving more people access to readily available cash, financial institutions expand the money supply.
• B) By issuing money through government contracts, financial institutions expand the money supply.
• C) By taking deposits and loaning out these funds, financial institutions expand the money supply.
• D) By collecting interest on its accounts through investments, financial institutions expand the money supply.
• E) By giving interest from its accounts to its clients, financial institutions expand the money supply.

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Definitions:

Allowance for Doubtful Accounts

A reserve account used to estimate the amount of receivables that may not be collectible.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or within the normal operating cycle of the business, whichever is longer.

Allowance for Doubtful Accounts

A contra-asset account that represents the amount of accounts receivable a company does not expect to collect.

Accounts Receivable

The money owed to a business by its customers for goods or services that have been delivered or sold but not yet paid for.